Since Governor Haruhiko Kuroda took office in March 2013, the Bank of Japan (BoJ) has been the most aggressively expansionary advanced-economy central bank. Its announcement last month of a “new framework for strengthening monetary easing”—coming only six months after introducing negative policy rates—distances it even further from the pack.

That a central bank is willing to assess its performance transparently and to consider new approaches to achieving its key goals is something we have come to expect. While it’s much too early to tell whether the latest BoJ innovations will be more successful, there is reason to be skeptical. No less important, the new approach involves risks to the central bank and to financial market stability that may not be fully appreciated. Given the difficulties that other advanced-economy central banks seem to be having in raising inflation and inflation expectations, how the BoJ fares is of interest far beyond Japan.

Steve Cecchetti and Kim SchoenholtzOctober 31, 2016Unconventional monetary policy, Inflation targeting, Price-level targeting, Bank of Japan, Yield curve target, Deflation, Inflation expectations, Nominal GDP targeting, Treasury Accord, Real interest rate

Monetary policy target regimes: inflation, price level, nominal GDP, etc.

Should central banks target inflation, the price level or nominal GDP? The question of the appropriate policy target has been a subject of analysis at least since the 1980s and has become a matter of intense debate (see here and here) for the past several years. Many proponents of price-level or nominal GDP targeting share the idea that – by credibly committing to make up the shortfalls in the price level or in nominal GDP relative to the pre-crisis trend – policymakers could drive down the current real interest rate and accelerate the economic recovery.

Looking at where we are today, what would this mean?

Steve Cecchetti and Kim SchoenholtzJune 19, 2014Monetary policy, Inflation targeting, Price-level targeting, Nominal GDP targeting, Systematic risk

Commentary

Money, Banking, and Financial Markets